Jack Wright: Dealing with External Pressures

9/28/2010

Arbelaez, Camilo

Jack had done a good job paving the way for better governance, and board and management relations. He was ready to approach Sam in order to finalize true change in Mega’s board. However, Sam’s unfortunate death changed how Jack was to influence change. Not only his progress was put on hold, but now the financial world targeted Mega to see what it will do next or to take advantage of a mistake. Jack no longer controlled the pace of change. To a great extent, his efforts hinged on the direction the board was about to take. But there were more events that exposed Mega and the directors to external factors other than Sam’s death. The fact that the CEO had overstated the value of the work-in-progress inventories is a sign of poor financial control measurements. The audit committee should have had in place a mandated periodic inventory (every quarter) for all the subsidiaries. The integrity of the CFO comes in question because he did not warn the board or the audit committee. The over-reported findings were identified two months prior to the phone call and the CFO had not made any corrections.
The stock value for Mega’s shares in the open market decreased from $35 to $24 per share. This decrease caused tension from the shareholders who all of a sudden saw the value of their investment decrease by 31.43%.
To mitigate the pressure from shareholders, Jack and Mega should implement changes in the board committees’, specially the audit committee. The committee should oversee or audit the inventory. There should also be an open disclosure of findings between the committee and other the board. The board should also consider discharging the CFO as the lack of control in his responsibilities along with his lack of judgment and integrity are the second and third major offense that have